Monsanto Falls for 2nd Day on End of American Home Merger Plans
Bloomberg News
October 14, 1998, 3:35 p.m. ET
Monsanto Falls for 2nd Day on End of American Home Merger Plans
St. Louis, Oct. 14 (Bloomberg) -- Monsanto Co. shares fell
as much as 6.4 percent amid concern about how one of the world's
largest biotechnology companies will promote its drugs and manage
its finances after ending a planned $35 billion merger with
American Home Products Corp.
Monsanto fell 2 1/2 to 34 1/2, a 52-week low, in
midafternoon trading. Monsanto closed Monday at 50 3/8. American
Home fell 1/4 to 44 3/4. Yesterday, it fell 5 to 45.
Investors had looked to American Home's financial discipline
and marketing muscle to make the most of Monsanto's promising new
drugs and agricultural products. Monsanto has spent heavily on
research into new, improved seeds that can better withstand
insects and disease.
''Monsanto wasn't willing to accept the rigorous financial
controls that American Home wanted to place on them,'' said
Darrell Riley, an analyst at T. Rowe Price, which owns shares in
both companies. ''It's like a child that won't take the medicine
they need to get better.''
American Home, the world's seventh biggest drugmaker, is
known for its strict cost controls. Led by John Stafford, the
Madison, New Jersey-based company also knows how to promote its
drugs effectively, especially in the arthritis market, analysts
said.
''American Home is a machine,'' Riley said. ''They can
squeeze dollars out of stones.''
Monsanto said it will continue its strategy of forming
alliances with larger drugmakers instead of seeking a new merger
partner.
Agreement With Pfizer
St. Louis-based Monsanto has an agreement with Pfizer Inc.,
considered one of the world's best drug marketers, to sell
Monsanto's new arthritis drug, Celebra, the next potential
blockbuster in the drug industry. Celebra treats pain
and inflammation without irritating the stomach.
Celebra was part of Monsanto's attraction for American Home,
which has grown through acquisitions over the years. Shareholders
don't expect that to stop.
''Something else is going to happen,'' said Jeff Bianchi, an
analyst with Aeltus Investment Management. ''Once a company puts
itself up for sale or is looking for mergers, it doesn't stop
when there is a failed merger attempt.''
American Home earlier this year disclosed that it had had
merger talks with U.K.-based drugmaker SmithKline Beecham Plc.
Analysts attributed the end of these talks to a failure of top
executives to decide who would lead the combined business. The
recent agreement with Monsanto foundered for similar reasons,
they said.
''We're disappointed that the management teams couldn't make
the deal work for whatever reason,'' said Karen Johnson-Grunst,
an analyst with Banc One Investment Advisors.
American Home's agricultural business would have benefited
from Monsanto's management, Johnson-Grunst said. Now, American
Home might consider selling its American Cyanamid unit, which
makes herbicides and insecticides, she said.
''If they don't have Monsanto's expert management to run it,
they may sell it,'' she said.
American Home earlier this year shed a medical-supply
business to better concentrate on pharmaceuticals and
agriculture. It sold the unit to Tyco International Ltd. for
$1.77 billion in March.
-- Marion Gammill and Kerry Dooley in the Princeton newsroom |
